Baxter Sees Operating Net Dipping

July 10, 1993|By Michael L. Millenson.

Health-care reform may yet bring the booming demand for medical supplies that Baxter International Inc. is predicting, but on Friday the company said that its second-quarter operating earnings will sag 5 percent-in part because hospitals, fearful of reform, are hedging their purchases.

And though the maker and distributor of medical products continues to trumpet its transformation into an international entity as comfortable in Hong Kong as in Hinsdale, that strategy has exacted a price: Swings in foreign exchange rates also will hurt earnings for the quarter.

Along with hospital hesitancy and foreign-currency fluctuations, operating income will be hurt by costs related to staff reductions at Baxter's hospital distribution business, the largest in the world.

Meanwhile, research-and-development expenses are growing at about twice the pace of corporate sales, the company said, as Baxter tries to develop high-margin, proprietary products.

Vernon R. Loucks Jr., Baxter's chairman and chief executive, repeated his assertion that health-care reform will eventually leave the company in a better position than ever.

"There is little doubt that demand for our products and services will continue to be strong, particularly if the president is successful in broadening access to care for 37 million Americans who lack health insurance today," Loucks said.

In the near-term, however, hospitals have been reluctant to order too much inventory and have been resisting price increases. That, in turn, has slowed Baxter production lines while overhead costs have remained constant, pinching margins.

Baxter last year recorded earnings before interest, taxes and extraordinary items of $252 million on sales of $2.1 billion.

Net income last year was $128 million, or 46 cents a share, and that number should rise 8 to 12 percent, a Baxter spokesman said, in part because of a one-time gain from the April sale of the company's Towers Products packaging business.

On Friday, Baxter stock sank $1.62 a share, to $26.87, in active trading on the New York Stock Exchange.